Winning in the EMinis
- Thread starter MaxMin
- Start date
This is the usual question that is asked in response to posts that are general rather than specific. I guess it comes down to definitions and viewpoint. Let's get back to the original statement so we can include some context.
The truth that I'm specifically referring to is that a major decline had already begun and was underway. In other words the trend was down. The price had broken through S2. The applicable analysis to the situation is that when price breaks through S2 and the move has high momentum (which it obviously did), it tends to carry to S3. This was the truth of that moment. So instead of looking for a buy, instead of just watching it, I admitted that the trend was down and used the historical analysis of the situation to move me into action. This is what I mean when I am talking about being true to the truth. There was the market reality, and the analysis reality. The analysis reality provided a high probability. Most of you will think that high probability is a far cry from the "truth". Maybe it is, but my experience is that trading is all about sizing up the moment, and utilizing the analysis that we have in our toolkit and that fits the situation in the moment that it is called for. I guess this is what I mean by being true to the truth as it relates to trading.
Now let's talk about your question more closely. You are trying to figure out which moves will pay off, and which moves will not pay off. You use a basketball analogy (head fakes) and an engineering term (noise) to describe moves that don't work out profitably according to the analysis. It seems trite to say that the future is uncertain, and that we cannot know what will happen with certainty, yet this is the reality of trading. In your other thread you approached it from a pure probabalistic viewpoint. If you take the human aspect out of trading by automating and quarantining a system, then this is all one can do.
I personally don't view the market as either true moves or fake moves. I consider all moves that are of a minimum range to be true (see the example in the Retracement post of using a minimum 2 point range to define a move). Moves that are less than the minimum range that I'm looking at are pullbacks within the trend. I don't believe that the market is ever wrong - it just exists and moves. So by my definition, there is no such thing as a fake move.
My job is to be aware of what the market is ACTUALLY doing. To achieve this I have to be DETACHED from the market in order to objectively see the reality that is going on in the market, like an impartial spectator, rather than as a fan who roots for one side or the other. I then search through my analysis to see if any of it applies to the current situation. This requires being true to the analysis and not fudging. It requires objectivity and DETACHMENT from the analysis. Then when the analysis meets the moment and it is time to move into action, I need things like confidence, decisiveness, focus, alertness, and flexibility.
it always suited me very well to keep all things in trading as simple as possible. I do not agree with your points on pivot and market trends. IMO, it boils down to differentiate between a real market move and noise. The ultimate goal is to differentiate between them. You want to set your stops far enough to not to get stopped out by noise. On the other side you want to be on the right side of the trend once the market picks up and moves beyond the noise level.
Unless you are fishing for some single points in the futures markets, I totally disagree with some who argue that one's trading is heavily impacted by those evil floor traders who love to take out stops. This, IMO, is total nonesense. The index contracts (regardless of whether it be the minis or full contracts) are trading very closely to the cash index (meaning that there is not much beyond the usual base generated by interest in the index futures and storage costs in the commodities). Everyone who watches the base closely will recognize that unusual spreads hold for a few seconds, that is all. So, I guess what I am trying to say is that with proper money management, one should anyway not come close to the noise level when setting stops or profit targets. Noise level indeed is generated by buying and selling of the futures contracts. Everything else beyond this is market movement in the cash indexes.
So, when the markets are trending such as happened on the 28th and 29th of January, who cares about pivots? Nobody should!!! Everybody should have noticed the reversal and when one would have taken the time to take the daily volatility into consideration, the decision point of when a reversal was taking place would have become cristal clear. Indeed, would you have watched the market moving through support level 1 and level 2 it would have been way too late, and you would have given up a huge chunk of the big move.
Trading is really not that scientific. It boils down to iron emotions, strict money management and adherence to those, and acting on your fininding that you investigated and studied BEFORE the market opens. I am not saying that all TA is a joke, but I am very convinced that the computation of probabilities should take a much more important place than TA.
Unless you are fishing for some single points in the futures markets, I totally disagree with some who argue that one's trading is heavily impacted by those evil floor traders who love to take out stops. This, IMO, is total nonesense. The index contracts (regardless of whether it be the minis or full contracts) are trading very closely to the cash index (meaning that there is not much beyond the usual base generated by interest in the index futures and storage costs in the commodities). Everyone who watches the base closely will recognize that unusual spreads hold for a few seconds, that is all. So, I guess what I am trying to say is that with proper money management, one should anyway not come close to the noise level when setting stops or profit targets. Noise level indeed is generated by buying and selling of the futures contracts. Everything else beyond this is market movement in the cash indexes.
So, when the markets are trending such as happened on the 28th and 29th of January, who cares about pivots? Nobody should!!! Everybody should have noticed the reversal and when one would have taken the time to take the daily volatility into consideration, the decision point of when a reversal was taking place would have become cristal clear. Indeed, would you have watched the market moving through support level 1 and level 2 it would have been way too late, and you would have given up a huge chunk of the big move.
Trading is really not that scientific. It boils down to iron emotions, strict money management and adherence to those, and acting on your fininding that you investigated and studied BEFORE the market opens. I am not saying that all TA is a joke, but I am very convinced that the computation of probabilities should take a much more important place than TA.
I agree with the fact that with TA you can see with 100% accuracy what has already happenED in the markets. But you do not get more accuracy than looking through a crystal ball when trying to predict future market movement. Its more of an art than science, as has been mentioned in tons of books, magazines, and journals.
Don't get too much carried away by pivot points or like things. They might blur your vision by relying too much on some fixed numbers.
Don't get too much carried away by pivot points or like things. They might blur your vision by relying too much on some fixed numbers.
Everyone has tools. Everyone needs tools. My tools might not work the best for you. Your tools might not work the best for me. What are your tools? Unlike toys, the one with the most tools does not win. Tools take space. Tools take time. Time and space are limited resources. Are you maximizing your limited resources?
Support and resistance is a tool you should have in your toolbox. As a sub-tool I suggest taking a look at the pivots on the S&P. NihabaAshi talked about some ways he uses pivots including using them as profit targets. They are well suited for this use. Swing traders might observe something that day traders might not pick up with respect to pivots. For instance a swing trader might observe the relationship between a market closing above the next day's pivot (approximated by the current day's (H+L)/2) and the major swings and how often a crossover to the other side of the pivot on a closing basis leads to a swing in that same direction. For instance, today (1/30) we see on the close that we are closing higher than Monday's central pivot point. This may indicate that we are due for a swing to the upside next week.
Two other support/resistance points that I pay particular attention to and that are drawn on my chart each morning alongside the pivots, (and before the session begins) are the overnight high and low. Even more than the pivot points, the overnight points tell me a lot about the prevailing tone of the market and the major trend. In a very general way, I use a move through an overnight point as an indication of whether the market is trending or not. My basic definition is a 2+ point move through an overnight point on the ES indicates a trending market. For some reason 2 points (give or take) seems to be the area where a reversal is likely or a strong trend will become evident. When the market is strongly trending below the intraday low, for instance, I will then only look to take short positions. Vice versa for the intraday high. On a day like today, the market is using the overnight low as a support point, so I will trade it like a trading range - buy the lows and sell the highs rather than anticipating a breakout in either direction. If a breakout occurs, I then change my orientation toward trend mode in the direction of the breakout. If the breakout fails and we are back on the other side of the overnight point, my orientation goes back to trading range style of trading.
I look at relationships of the major markets: ES, NQ, YM. Typically one will lead, one will follow close behind and one will lag behind. This relationship can change even intraday depending on conditions and developments so it pays to be flexible though often the relationship will persist for hours or days. Quite often they all track quite similarly though sometimes NQ is out in left field. When I see an obvious opportunity forming: such as a strong trending market and the YM is doing a larger pullback against the trend than the other two, I will often take that opportunity to take an entry in YM, betting that it will revert back to the major trend. Of course this presupposes that YM is not the leading market at the time. The same goes for the other issues. I find the action of these three markets to be very helpful as confirmation during market turns. Some people like to look at market internals. There is nothing wrong with this. But I find I can get enough tradeable information from the relationship of these three vehicles, and the result of looking at them is that I am always ready to pull the trigger if an opportunity arises.
I also like to keep track of how far each swing carries as there seems to be an almost uncanny symmetry to market swings. I also keep an eye on the cash to see that its moves confirm what the futures are doing.
I also look at money flow and time & sales to see which way the volume is flowing. Money flow seems to work best when the market is trending, so on a trading range day like today, I don't pay too much attention to it, though even today it gave some good clues.
The thing I have done over time that has probably had the best impact on my trading is to limit what I look at. This allows me to be very focused, and to not waste my time looking at things that are not improving my bottom line. I suggest that you take a look at your tools. Are there tools that you are using that are not helping your trading, but are rather cluttering up your workspace, or expending your time or energy without any real return? If this is the case I would suggest that you liberate yourself of these drags on your time, so that you may focus more closely on those tools that are helping your bottom line.
Support and resistance is a tool you should have in your toolbox. As a sub-tool I suggest taking a look at the pivots on the S&P. NihabaAshi talked about some ways he uses pivots including using them as profit targets. They are well suited for this use. Swing traders might observe something that day traders might not pick up with respect to pivots. For instance a swing trader might observe the relationship between a market closing above the next day's pivot (approximated by the current day's (H+L)/2) and the major swings and how often a crossover to the other side of the pivot on a closing basis leads to a swing in that same direction. For instance, today (1/30) we see on the close that we are closing higher than Monday's central pivot point. This may indicate that we are due for a swing to the upside next week.
Two other support/resistance points that I pay particular attention to and that are drawn on my chart each morning alongside the pivots, (and before the session begins) are the overnight high and low. Even more than the pivot points, the overnight points tell me a lot about the prevailing tone of the market and the major trend. In a very general way, I use a move through an overnight point as an indication of whether the market is trending or not. My basic definition is a 2+ point move through an overnight point on the ES indicates a trending market. For some reason 2 points (give or take) seems to be the area where a reversal is likely or a strong trend will become evident. When the market is strongly trending below the intraday low, for instance, I will then only look to take short positions. Vice versa for the intraday high. On a day like today, the market is using the overnight low as a support point, so I will trade it like a trading range - buy the lows and sell the highs rather than anticipating a breakout in either direction. If a breakout occurs, I then change my orientation toward trend mode in the direction of the breakout. If the breakout fails and we are back on the other side of the overnight point, my orientation goes back to trading range style of trading.
I look at relationships of the major markets: ES, NQ, YM. Typically one will lead, one will follow close behind and one will lag behind. This relationship can change even intraday depending on conditions and developments so it pays to be flexible though often the relationship will persist for hours or days. Quite often they all track quite similarly though sometimes NQ is out in left field. When I see an obvious opportunity forming: such as a strong trending market and the YM is doing a larger pullback against the trend than the other two, I will often take that opportunity to take an entry in YM, betting that it will revert back to the major trend. Of course this presupposes that YM is not the leading market at the time. The same goes for the other issues. I find the action of these three markets to be very helpful as confirmation during market turns. Some people like to look at market internals. There is nothing wrong with this. But I find I can get enough tradeable information from the relationship of these three vehicles, and the result of looking at them is that I am always ready to pull the trigger if an opportunity arises.
I also like to keep track of how far each swing carries as there seems to be an almost uncanny symmetry to market swings. I also keep an eye on the cash to see that its moves confirm what the futures are doing.
I also look at money flow and time & sales to see which way the volume is flowing. Money flow seems to work best when the market is trending, so on a trading range day like today, I don't pay too much attention to it, though even today it gave some good clues.
The thing I have done over time that has probably had the best impact on my trading is to limit what I look at. This allows me to be very focused, and to not waste my time looking at things that are not improving my bottom line. I suggest that you take a look at your tools. Are there tools that you are using that are not helping your trading, but are rather cluttering up your workspace, or expending your time or energy without any real return? If this is the case I would suggest that you liberate yourself of these drags on your time, so that you may focus more closely on those tools that are helping your bottom line.
Trading isn't about perfection. Trading is about making due with existing conditions and doing the best you can with what you have before you. It is kind of like one of those TV shows where you have to accomplish a set of tasks with limited resources. You have to get from point A to point B. You have to make the most out of every situation and every resource. Every situation you are in is not a winner. You may be rebuffed or be unable to progress. By cutting your losses short and preserving your time, you are able to get more of the tasks done quicker. Thus it is with trading.
Perfection is evil. I think someone once said (if not then they should have) that "Perfection is the enemy of the good." Perfection is an unattainable ideal that warps, corrupts and turns good into bad, profits into losses, winners into losers. Perfection means missing a fill by one tick because that one tick is more important that making money. Perfection means not taking a profit and then watching that profit turn into a loss because perfection is more important than making money. Perfection means passing up profitable trades because they weren't perfect enough even though those setups could have made money. Perfection means hoping a loss comes back to let you out even, because taking a loss would blemish your perfect win %. Perfection is for losers.
So if perfection is the wrong mindset for trading, what is a better mindset? Maximizing. *Boom* you are in a trade, the prices are moving and your job is to maximize. It doesn't matter that you had an open profit of two points, and now you only have an open profit of 1/2 point. All that matters is that you now have a 0.50 open profit and your job is to make the most of the current situation. If maximizing means pulling the trigger and taking 0.50, then this is the right decision. If maximizing means waiting it out then that is the right decision. Paralysis is out of the question when maximizing. Since there is only the open trade, the past is the past, and the present is all about maximizing what IS. When you are maximizing, the past has no power to paralyze your current action. The market doesn't owe you two points again, and you are not foolish for taking less than two points. You are a maximizer. You make the most out of what is before you and by taking imperfect profits and imperfect losses you end up a net winner. After all, isn't the point of trading to win in the Eminis?
Perfection is evil. I think someone once said (if not then they should have) that "Perfection is the enemy of the good." Perfection is an unattainable ideal that warps, corrupts and turns good into bad, profits into losses, winners into losers. Perfection means missing a fill by one tick because that one tick is more important that making money. Perfection means not taking a profit and then watching that profit turn into a loss because perfection is more important than making money. Perfection means passing up profitable trades because they weren't perfect enough even though those setups could have made money. Perfection means hoping a loss comes back to let you out even, because taking a loss would blemish your perfect win %. Perfection is for losers.
So if perfection is the wrong mindset for trading, what is a better mindset? Maximizing. *Boom* you are in a trade, the prices are moving and your job is to maximize. It doesn't matter that you had an open profit of two points, and now you only have an open profit of 1/2 point. All that matters is that you now have a 0.50 open profit and your job is to make the most of the current situation. If maximizing means pulling the trigger and taking 0.50, then this is the right decision. If maximizing means waiting it out then that is the right decision. Paralysis is out of the question when maximizing. Since there is only the open trade, the past is the past, and the present is all about maximizing what IS. When you are maximizing, the past has no power to paralyze your current action. The market doesn't owe you two points again, and you are not foolish for taking less than two points. You are a maximizer. You make the most out of what is before you and by taking imperfect profits and imperfect losses you end up a net winner. After all, isn't the point of trading to win in the Eminis?
Max, I like your paragraph on Perfection since that is a problem I face everyday. I try to pin-point my entry to the last tick so I don't have to see even a tick of unrealized loss on my screen before it turns to profit. And I do miss some very nice trades because of this. Do you have any real solution to this problem? Did you once have this problem? If so, how did you get past it?
Keep the posts coming!
-Fast
Keep the posts coming!
-Fast